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Three Key Iowa Employer Health Cost Projections for Next 10 Years

Given the evolution of rapidly-developing technologies in any given industry, with a blink of an eye we are enjoying new product launches that substantially impact our daily livelihood and newly-acquired habits. For example, just one decade ago (2009-2010), the Apple iPad was being launched, self-driving autos were a wishful idea still in conception, and the Chrome OS and Chromebook computers were not yet a ‘thing.’ Cast forward to now and we have countless new products that we never dreamed of having available 10 years ago.

Much of this ‘advancement,’ one might argue, has centered our lives around personal conveniences at a relatively affordable cost.

Unfortunately, when it comes to healthcare trends in the next 10 years, I do see the continuance of our national inaction of ‘fixing’ the healthcare system. Escalating costs will continue its upward projection for the foreseeable future.

With this in mind, it might be interesting to forecast three primary cost-sharing responsibilities that Iowa employers and their employees will face when paying for healthcare coverage 10 years from now:

  1. Monthly health premiums
  2. Monthly employee contributions of these premiums
  3. Health plan deductibles.

Using a simple linear regression1 trend line tool, I will share what these costs may project to be in 2029 – a decade from now. Linear regression analysis will serve as my ‘crystal ball’ of what health costs may be in Iowa without any meaningful reform changes during the next decade – including economic downturns and other factors that may impact health insurance coverages.

It is also worth mentioning that median household income will also be different for Iowans by 2029. In 2017, the median household income in Iowa was $58,570. Annualized at 1.5 percent for the next 10 years, the median household income is projected to be $70,027 by 2029.

PROJECTED MONTHLY HEALTH INSURANCE PREMIUMS IN 10 YEARS

In our 2019 Iowa Employer Benefits Study©, we learned the average single and family health premiums were $585 and $1,611, respectively. Based on prior results dating back to 1999, the linear regression graphic (found below) shows that the monthly premium for single and family coverages could jump to approximately $800 and $2,000 by 2029.

This finding may appear to be somewhat tame, but this increase would be much greater if employers refrain from altering their health plans to keep them ‘affordable.’ As we know, this does not happen, as employers have always ‘watered down’ their health plans to maintain some sense of affordability. This is typically done by shifting additional costs to employees through higher payroll deductions and plan design alterations that require more financial exposure by employees. Both are discussed below.

PROJECTED MONTHLY EMPLOYEE CONTRIBUTIONS IN 10 YEARS

By 2029, Iowa employees with single health coverage are projected to contribute about $140 per month ($1,680 annual) for employer coverage, while an employee with family coverage is projected to contribute $600 monthly (or $7,200 annual). This projection is found in the graphic below.

PROJECTED SINGLE AND FAMILY HEALTH PLAN DEDUCTIBLES IN 10 YEARS

Health plan deductibles serve as the common approach for employers to shift rising health costs to employees and their family members. As premium costs continue to rise during this next decade, employers will most likely continue this trend. Based on the graphic found below, the average single and family deductibles will shift to about $3,000 and $6,000, respectively. The average 2019 deductibles in Iowa are $2,192 for single and $3,975 for family.

Not illustrated here, but the current out-of-pocket maximums (OPMs) that Iowa employees are paying through their employer plans are at $3,700 single and $6,800 family. The linear regression line for single and family OPMs illustrates an increase to $5,000 and $10,000 respectively.

I must admit, I’m a bit surprised that all three graphics did not display greater increases during the next decade. But again, health reform, aging of boomers and economic conditions play a crucial role on how this might impact key cost components of employer-sponsored health coverage in Iowa.

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1In simplified statistical terms, a linear regression is a basic and commonly-used type of predictive analysis, that examines a set of predictor variables to determine a relationship over a period of time.

Healthcare Price Transparency? Its Time Has Finally Come

NOTE: Given the latest hospital price transparency developments, this blog enhances the one I published last March,  A Potential Game Changer – Making ‘Secretly-Negotiated’ Medical Prices Public.

The insurance card that you carry represents lost wages and financial bonuses that have been unnecessarily diverted to pay exorbitant healthcare fees to others.

From our 2019 research, the average annual Iowa employer premiums were $7,017 for single and $19,335 for family. Since 1999, these premiums have increased by 240 percent and 251 percent, respectively. Additionally, largely under the push for ‘healthcare consumerism,’ Iowa employees have been asked to pay much higher deductibles – now at $2,200 for single and $4,000 for family coverages.

The escalating prices we pay for healthcare services operate in a black box. Whether for hospitals, doctors, pharmacy or other healthcare providers, we have no idea what the negotiated prices actually are between insurers and health providers, at least until sometime AFTER the services have been rendered. Such opaqueness is intentional. To paraphrase noted economist Uwe Reinhardt, where there’s mysteries in pricing, there’s larger-than-normal margin to be had. In healthcare, obscene money is made when it is allowed to operate in a dark room of denial and obfuscation.

On November 15, the Centers for Medicare and Medicaid Services (CMS) issued a final rule that requires hospitals to disclose the rates they negotiate with insurers. This hospital price transparency rule, set to begin in 2021, requires hospitals to disclose the standard charges for all items and services, including supplies, facility fees and professional charges for employed physicians and other practitioners. The final

Additionally, the final rule requires hospitals to post payer-specific negotiated rates online in a searchable and consumer-friendly manner for 300 of the most popular services shopped by patients.

Under a separate CMS proposal, health insurers will be required to disclose on a public website their negotiated rates for in-network providers and allowed amounts paid for out-of-network providers. Health insurers will need to offer a transparency tool to provide covered members with personalized out-of-pocket cost information to all covered services in advance. The language for this proposed rule can be found here.

Negotiated prices are largely bound by confidentiality agreements between healthcare providers and insurance companies, and are so closely guarded that even mega-sized employers are not allowed to penetrate this veil of secrecy.

It is revealing that the American Hospital Association (AHA) and the Federation of American Hospitals are exploring legal options to argue that transparent pricing will constrain private contract negotiations.

Two influential insurance organizations have revealed their opposition to price transparency – America’s Health Insurance Plans and the Blue Cross and Blue Shield Association. A spokesperson from the BC/BS Association indicated these rules “will not help consumers better understand what health services will cost them and may not advance the broader goal of lowering healthcare costs.” The argument made is that price transparency can actually increase prices because clinicians and medical facilities will bid up prices, rather than lower rates.

Despite these self-serving arguments, the status quo only works for hospitals and insurers, but not for those who actually pay for healthcare. This must change.

By itself, real prices made public will not solve the inherent problems that persist throughout the healthcare system, but price transparency is a good first-step to have. Clearly, it is not the sole remedy to a ‘system’ that requires massive incremental fixes.

Admittedly, the push for healthcare ‘consumerism’ has been relatively slow. However, it is likely that consumerism will find new legs due to third-party entrepreneurs and technology companies who will find disruptive ways to make pricing a relevant decision-making tool for many patients. All purchasers want the best value in the healthcare being purchased.

Regardless of political party affiliation, price transparency in healthcare should be widely accepted by Iowans and all Americans.

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Estimated Waste in Iowa Employer Health Premiums:
$2,400 Single/$6,600 Family

Imagine walking into a restaurant and being seated. Sometime after your meal, you receive the check and find an additional charge that was not indicated on the menu or previously mentioned by your waiter. The charge – before your gratuity is determined – is a 34 percent markup simply labeled, ‘Surcharge.’ After prodding the waiter, the sheepish but honest response is whispered to you: “The restaurant industry is bloated and inefficient requiring additional costs, and because of this, we must pass on this surcharge to our patrons.”

Truth be known, we are all paying this ‘surcharge’ in the healthcare that we purchase, as it is baked into our health insurance premiums and the out-of-pocket expenses we incur and pay. What is different from the hypothetical restaurant example, however, is there’s no transparency on how much these costs add up in healthcare. Opaqueness of this information allows this surcharge to be included on the final price tag – and the purchaser is no wiser.

In healthcare, it’s buyer beware – on steroids.

Healthcare Waste in the U.S.

To begin, defining healthcare ‘waste’ is somewhat tricky, but nonetheless important. Waste is defined by many in the industry to be resources that are expended in services, money, time, and/or personnel that do not add value for the patient, family or community. In fact, this non-value waste can actually harm patients, which adds more cost to the system.

I recently watched an Institute for Healthcare Improvement (IHI) webcast, “Let’s Get to Work on Waste in Health Care.” In addition to a wonderful Call to Action’ piece, IHI provided great examples of healthcare waste within the ‘Trillion Dollar Checkbook.’ The IHI used ‘trillion’ in this piece because the healthcare industry in the U.S. is about one-fifth of the nation’s economy (and growing), and the annual spend in healthcare during 2018 was $3.65 trillion. Healthcare waste in the U.S. is generally believed to be a comfortable one-third of the total spend – roughly one trillion dollars – about the size of Mexico’s economy. Click here for the audio and video of this webcast.

The IHI referred to a JAMA article published in 2012 by Dr. Donald Berwick, a highly-respected physician and health policy expert, and Andrew Hackbarth of the RAND Corporation. The article, “Eliminating Waste in US Health Care,” aptly describes that escalating healthcare costs is debilitating other worthy government programs, cheap drugs, erodes wages, and undermines the competitiveness of the overall U.S. industry. The percentage of waste that is built into healthcare costs, according to this paper, ranges from 21 percent to 47 percent, with 34 percent being the midpoint.

‘Litter Box’ of Healthcare Waste

So what healthcare waste is found in the litter box hidden from the public?  Plenty. A ‘less harmful strategy’ described by the JAMA authors would be to reduce waste that does not add value to care. They cite six categories of waste briefly summarized below, beginning with the largest estimated waste to the smallest:

  1. Administrative complexity – Government, private payers, and others create inefficient or misguided rules for providers. By comparison, in 2015, the U.S. spending on healthcare administration dwarfs the OECD countries. One example is that payers fail to standardize forms, consuming limited physician time in having to deal with onerous billing procedures. Multiple payers do not coordinate their efforts with those providing care. Estimated waste in 2011: Between $107 billion and $389 billion.
  2. Overtreatment – Subjecting patients to care that cannot possibly help them – based on sound science and patient preferences. This care is “rooted in outmoded habits, supply-driven behaviors, and ignoring good science by providing excessive and inappropriate care. Examples include using excessive antibiotics and opioids, performing surgery when watchful waiting makes better sense, and unwanted intensive care at end-of-life for patients who don’t want this. Estimated waste in 2011: Between $158 billion and $226 billion.
  3. Fraud and abuse – Issuing fake bills and running scams to get paid by government and private payers. Estimated waste in 2011: Between $82 billion and $272 billion.
  4. Pricing failures – Well-functioning markets produce reasonable prices that come from actual costs of production plus a fair profit. In healthcare, due to lack of transparency and competition, prices are several times more than identical procedures in other countries. Pricing failure includes payer-based health services pricing, medication pricing, in addition to laboratory-based and ambulatory pricing. Estimated waste in 2011: Between 84 billion and $178 billion.
  5. Care delivery failures – This includes poor execution and lack of widespread adoption of known best care processes, such as for patient safety systems and preventive care practices and are known to be effective. Better care saves money. Estimated waste in 2011: Between $102 billion and $154 billion.
  6. Care coordination failures – Care in the U.S. is fragmented, meaning that patients fall through the cracks, resulting in complications, hospital readmissions, and declines in functional status requiring increased dependency. Estimated waste in 2011: Between $25 billion and $45 billion.

New JAMA Study Released about Waste

A new study published in JAMA finds that roughly 20 to 25 percent of American healthcare spending is wasteful. Although this finding is slightly less than findings mentioned above, the estimated waste is considered to be an astounding $760 billion to $935 billion per year – comparable to government spending on Medicare. This waste exceeds national military spending and total primary and secondary education spending. This study also addresses the same six categories of waste explained earlier.

Waste in Iowa Employer Health Insurance Premiums

In our recent 2019 Iowa Employer Benefits Study©, we found the average annual single and family health insurance premiums are now $7,017 and $19,335, respectively. Using the midpoint of 34 percent waste (a number from the Berwick study), the annual waste built into the Iowa single and family premiums are $2,386 and $6,574, respectively. This estimated waste reflects the amount employers and their employees overpay which generates income for providers, healthcare industry vendors, health systems, and health plans.

Applying the midpoint for each of the above six categories of waste, I was able to estimate each of the six cost components for the health insurance premiums paid by Iowa employers and their employees. Below is a graphic that depicts the total estimated waste found in both the single and family premiums based on the six waste categories described earlier.

Summary

By tolerating waste, we unknowingly create and sustain a rising burden of out-of-pocket expenses, suppressed take-home pay, delays of care and other side-effects that harm our care and well-being. As mentioned in the IHI’s ‘Call to Action,’ “…it’s not just money that’s being wasted. The most precious resources – the workforce’s time, spirit and joy – are being unnecessarily drained by wasteful processes every day…No matter how many medical breakthroughs achieved…if we don’t remove waste in health care, our health systems cannot thrive.”

Healthcare waste comes from many different sources, which require multiple strategies to reduce at least a fraction of waste described above. Berwick believes that healthcare waste must be attacked through political means, such as simplification of administrative services and pushing back on irrational pricing. Others believe that enhancing regulation of healthcare monopolies can also greatly help.

Frankly, too many ‘insiders’ are afraid to speak critically about their wasteful piece of the healthcare system, fearing loss of promotion, employment or obtaining lucrative consulting contracts. This fear allows the status quo to remain largely unchallenged.

Whatever the solutions, we must begin to have an honest national discussion about the massive waste we pay to others who see this as their revenue and income. A logical start is for voters to ask candidates how they propose to cut waste and simplify our healthcare system.

With 20 to 47 percent of our health insurance premium and out-of-pocket costs considered to be ‘wasteful’, I’m ready to have this discussion.  Are you?

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